How To Trade Short From Supply

Here’s a trade I took last week on the AUDCAD pair. I took a short trade from a daily supply level. Here’s my analysis and reasons for the trade.

Daily Analysis

I identified supply on the daily chart and set and alert on my iPhone as usual. Price fell over 400 pips from the level so it was a pretty nice level.

A10 Image 1 Daily Supply

The Approach

Another big positive for this trade was how price arrived at this level. Price rallied nicely with nothing but green candles on the way to supply. This was great confirmation of the profit potential for the trade.

Confirmation

When price arrived at the daily supply level I dropped down to the H1 chart for further confirmation. I marked the nearest demand level and set an alert for just below it and waited for it to be engulfed.

Price engulfed the demand on the H1 chart and fell quite sharply. I marked up a H1 supply level which I believed to be the cause of the break and set an alert for it.

A10 Image 2 H1 Supply

Entry

When the price alert triggered for the H1 supply level, I observed pa on the 5m chart. Price had compressed into supply before spiking up and then engulfing the nearest 5m demand levels. There were two potential supply levels that could be used for entry and based on this price action on the 5m chart I entered the trade whilst placing my stop behind the H1 supply.

A10 Image 3 5m Supply

Exit

There’s a large demand level down at 0.9408 and although this was my initial target a new demand level showed up around 0.9634. This was the source of the rally into the H1 supply I shorted from. This looked strong on the daily. I observed price action at the level to see what would happen.

When price got into the zone I wanted to see price break the lows around 0.9588 for me to continue holding. I noticed a 5m supply level had formed. If that supply held then I would have held the trade. A demand level formed on the way to the 5m supply so I exited the trade for 194 pips.

I've also made a video about this trade too. You can check it out here:

 

I hope you found this useful.

Happy Trading

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5 Comments

  1. Lamar on January 28, 2014 at 17:35

    am i doing something wrong or is this video silent?
    thanks

  2. Joe Wright on January 28, 2014 at 18:25

    Hi!

    There is definitely audio though it may be quiet. Try turning up the volume a bit. See if that works.

    • Lamar on January 29, 2014 at 04:05

      Yes when i got home and was able to borrow the kids headphones i did get some sound. Good video. I enjoyed it. I have learned quite a bit from you and am getting much better at the levels. You keep up the good work. Ill keep learning. Thanks

  3. Joe Wright on January 29, 2014 at 07:21

    That’s great Lamar. I’m glad you found it useful. Thanks for the feedback.

  4. Janet on February 9, 2014 at 01:28

    Great analysis, great trade!

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